Foreign Investment in Japan 2024

Foreign Investment in Japan 2024

FOREIGN INVESTMENT 2024

JAPAN

Keita Tokura, Taku Matsumoto, Hiroyuki Saga, Saeko Tsujimoto

(Anderson Mōri & Tomotsune)

LAW AND POLICY

Policies and practices

1. What, in general terms, are your government’s policies and practices regarding oversight and review of foreign investment?

Foreign investments and currency control in Japan are primarily regulated by the Foreign Exchange and Trade Act (FEFTA). The FEFTA aims to ensure proper development of foreign transactions and maintenance of peace and security for both the Japanese and international business communities via certain minimum necessary controls over, and coordination of, foreign transactions. The provisions of the FEFTA are intended to create a balance of payment equilibrium and ensure stability of currencies, thereby contributing to the sound development of the Japanese economy.

The Japanese government’s policies and measures taken with respect to foreign investment are best comprehended by taking an overview perspective of the FEFTA; they aim at promoting a policy open to foreign investors while scrutinizing incoming investments having a potential to pose national security concerns.

Under the FEFTA, foreign investments in Japan may be carried out freely. However, certain foreign direct investments (FDI) must be reviewed by the Ministry of Finance and other relevant ministries. Investments originating from countries that Japan does not have treaties regarding inward direct investment with and investments in designated businesses and core businesses may require FDI notification with the Japanese government.

The following business are currently within the scope of designated or core businesses (designated businesses are included in items (1), (2) and (3) and core businesses in (1) and part of (2)):

1. weapons, aircraft, nuclear facilities, space and dual-use technologies;
2. cybersecurity, electricity, gas, telecommunications, water supply, railways, oil, and businesses related to rare-earth metals; and
3. heat supply, broadcasting, public transportation, biological chemicals, certain medical devices, security services, agriculture, forestry and fisheries, leather manufacturing and air or maritime transportation.

Foreign investment notification with the Japanese government must be given via the Bank of Japan (the Japanese central bank) prior to the acquisition of shares of a Japanese company engaging in such businesses at least 30 days prior to the execution thereof. Upon receipt of the notification, the relevant authorities will review and may recommend making changes to, or refuse to implement, the investment. The relevant authorities primarily assess whether the investment is likely to threaten national security, disrupt public order or hamper the protection of public safety. In order to make that determination, they consider the nature of the foreign investor, target companies and contemplated investments. If a foreign investor does not adopt its recommendations, the government may order a modification to or cancellation of the investment. These orders are legally binding.

The Japanese government is promoting a policy of openness to foreign investors while scrutinizing incoming investments for potential national security concerns. The FEFTA came under the spotlight in the latter half of 2019 when Japanese authorities started announcing changes to FDI regulations under the FEFTA. The changes that drew most attention were those relating to:

• the expansion of the scope of transactions requiring the filing of prior notification to include businesses relating to:
• information and communication technology (equipment, software and services); and
• the manufacture of certain pharmaceuticals and specially controlled medical devices;
• subject to the applicability of some limited exemptions, the lowering of the threshold for the obligation of prior notification from 10 per cent to 1 per cent of the listed company’s shares or voting rights; and
• implementation of an obligation to file prior notification in connection with the appointment of directors and transfer or abolition of businesses in the designated business categories.

The trends mentioned above correspond to recent restrictions on foreign investment in the US and EU among other countries. The expectation is that the legal system will be strongly influenced by future international conditions related to these issues.

Main laws

2. What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?

While the FEFTA is the main legislation regulating foreign investments, the following laws regulate foreign investments in specific industries.

• The Broadcasting Act (Act No. 132 of 1950): considering that basic broadcasting is a highly influential media outlet, this act restricts foreign investment in basic broadcasters, certified broadcasting holding companies and suppliers for basic broadcasting stations.
• The Radio Act (Act No. 131 of 1950): a radio station license may not be granted to a foreign national, a corporation represented by a foreign national, a corporation whereby a certain number of directors are foreign nationals or a corporation in which a certain number of voting rights are held by foreign nationals or companies.
• Civil Aeronautics Act (Act No. 118 of 2006): under this act, an aircraft owned by a foreign national, a corporation represented by a foreign national, a corporation whereby a certain number of directors are foreign nationals or a corporation in which a certain number of voting rights are held by foreign nationals or companies may not be registered in Japan. In addition, these individuals and entities may not hold an air transport business license.
• The Consigned Freight Forwarding Business Act (Act No. 82 of 1989): foreign nationals, corporations represented by foreign nationals, corporations whereby a certain number of directors are foreign nationals or a corporation in which a certain number of voting rights are held by foreign nationals or companies may not hold certain Consigned Freight Forwarding Business license
• The Mining Act (Act No. 289 of 1950): mining rights may only be held by Japanese citizens or corporations.
• The Ships Act (Act No. 46 of 1899): to own a ship registered in Japan, at least two-thirds of the company’s board members must be Japanese citizens.
• The Act on Nippon Telegraph and Telephone Corporations (Act No. 87 of 1984): this act regulates the maximum percentage of voting rights held by foreign nationals or companies and the appointment of directors by foreign nationals or companies.

In addition to the above, the Banking Act, the Insurance Business Act, and the Financial Instruments and Exchange Act restrict investors from holding more than a certain percentage of shares in a Japanese company, regardless of whether any such investor can be categorized as a foreign investor.

Scope of application

3. Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject of special scrutiny?

The following categories are regulated within the FEFTA’s scope.

• Inward direct investments: investments by foreign investors in domestic entities (including but not limited to direct or indirect share or asset purchases, incorporation of joint ventures and subsidiaries).
• Specified acquisitions: acquisitions by foreign investors of, inter alia, shares of domestic entities held by other foreign investors.
• Capital transactions: inter alia, other than the above categories, deposit transactions and loan agreements between residents and non-residents of Japan.

Pursuant to the 2019 amendment, the FEFTA was expanded to cover acquisitions of minor interests (except those lower than 1 per cent) in the shares of listed companies; as such, its provisions apply to a broader range of target acquisitions.

Prior notification and subsequent review by the authorities are required with respect to inward direct investments and specified acquisitions in certain cases. The applicability of the notice requirement is based on the attributes of the foreign investors and the nature of the business conducted by the target company (except when certain exemptions are available). More specifically, these attributes can be explained as follows.

• Restrictions based on the attributes of the foreign investors are imposed upon, among others, investments originating from jurisdictions where Japan is not a party to an FDI treaty (e.g, Iran) or certain activities involving the jurisdiction’s government, entities, individuals or groups.
• Restrictions based on the nature of the business conducted by the target company are imposed on, among others, investments in businesses related to:
• weapons, aircraft, nuclear facilities, space and dual-use technologies;
• cybersecurity, electricity, gas, telecommunications, water supply, railways, oil, and businesses related to rare-earth metals; and
• heat supply, broadcasting, public transportation, biological chemicals, certain medical devices, security services, agriculture, forestry and fisheries, leather manufacturing and air or maritime transportation.

Even if prior notification is required, the foreign investor may have discretion whether to file it if, after consultation with the Ministry of Finance and other competent authorities, it is determined that certain requirements are met. As such, foreign investors (other than certain ineligible persons designated under the FEFTA) may be eligible for an exemption from the requirement for prior notification if they accept the following restrictions with respect to their participation in the target company’s business:

• neither the foreign investor nor its related persons shall become board members or statutory auditors of the target;
• the foreign investor shall not make shareholder proposals for the divestiture of functions or assets of the designated business in whole or in part; and
• the foreign investor shall not access non-public information concerning the target’s technology in the designated business (e.g, through inquiries presented to the company’s executives), propose any disclosure of such information or request any changes to the target’s internal rules concerning the control of such information.

If the foreign investor is not a financial institution and the target’s designated business qualifies as a core business, to qualify for an exemption, the foreign investor must:

• refrain from attending any meetings of the target’s executive board or committees where decisions concerning the core business activities are discussed; and
• refrain from submitting any written recommendations regarding the core business activities to the target company’s executive board or committees requiring action or response within a specific time-frame.

Definitions

4. How is a foreign investor or foreign investment defined in the applicable law?

The FEFTA’s definition of a foreign investor is focused on nationality or capital structure. ‘Foreign investor’ covers:

1. individuals who are not residents of Japan;
2. corporations or other organizations(including Japanese branches of foreign companies) established under foreign laws and having their principal offices outside of Japan;
3. corporations in which the percentage of the aggregate voting rights directly held by persons included in (1) and (2) or indirectly (through at least 50 per cent ownership of intermediate entities) held by persons included in (1) and (2) is 50 per cent or more; or
4. corporations or other organizations in which the majority of either officers (i.e, directors or similar functions) or representative officers are individuals who are not residents of Japan.

Individuals or companies that do not directly fall within the categories mentioned above, but intend to make foreign direct investments on behalf of other foreign investors (whether or not under the name of such investors), shall be deemed foreign investors under the FEFTA.

Special rules for SOEs and SWFs

5. Are there special rules for investments made by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?

SOEs and SWFs are deemed foreign investors and are subject to the investment restrictions under the FEFTA.

Moreover, the FEFTA stipulates that investors classified within the category of ‘foreign Investors that are highly likely to constitute inward direct investments, etc. involving national security, etc.’ may not benefit from the exemptions from prior notification. Therefore, as SOEs and SWFs are controlled by foreign governments, they may be deemed classified within the category mentioned above and, as such, will not be entitled to the exemptions from prior notification.

However, since there is a market expectation of SWFs’ investment activities for purely economic and profit-making purposes, in practice, it is possible to be entitled to an exemption by obtaining individual authorization from the Ministry of Finance. There is some criticism regarding the fact that an exemption is not available solely due to the company being an SOE. Specifically, a letter of confirmation may be issued so that the SWF is not categorized within the scope of ‘Foreign Investors that are highly likely to constitute inward direct investments, etc. involving national security, etc.’ provided that the two following points are verified by the Ministry of Finance:

• the purpose of the investment is purely for investment or profit-making purposes; and
• the investment decisions are made independent from the foreign government.

Relevant authorities

6. Which officials or bodies are the competent authorities to review mergers or acquisitions on national interest grounds?

The Minister of Finance and the minister with jurisdiction over the designated business are the competent authorities to review the planned investments under the FEFTA. The Minister of Finance is responsible for the overall supervision of the interpretation and operations of the laws, regulations and the examination process, while the competent authorities are primarily responsible for the examination of prior notifications.

The ministers with jurisdiction over each sector of the business are publicly announced. Such sectors are generally designated as follows:

• the Prime Minister: banks, trusts, security business, insurance businesses and investment advisers;
• the Minister of Finance: import and export of precious metals and import and export of alcohol;
• the Minister of Agriculture, Forestry and Fisheries: agriculture and fishery and the manufacture of food or beverages;
• the Minister of Health, Labor and Welfare: pharmaceutical matters and medical devices; and
• the Minister of Economy, Industry and Technology (METI): manufacturing, sales, import and export of aircrafts, weapons and electricity.

Among these sectors, the vast majority of the actual review process falls within the jurisdiction of the METI.

All of the applications, notifications and reports under the FEFTA must be submitted through the Bank of Japan. Under Japan’s FDI regime, the services provided by the Bank of Japan include various functions related to the processing of FDI filings under the FEFTA. These functions include accepting the forms prescribed under the Ministerial Order; serving as the point of contact; and providing guidance to prospective filers regarding the preparation of the filing.

Foreign investors located outside of Japan usually delegate the actual filing and communications with the authorities to external legal counsel based in Japan who have the relevant expertise.

7. Notwithstanding the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national interest grounds?

Factors to be considered in the prior notification review are officially published. The evaluation largely based on the nature of the following:

• the foreign investor;
• target company; and
• investments the investor intends to make.

While in May 2020 the Ministry of Finance and other ministries responsible for relevant business sectors have published factors they would take into consideration when reviewing inward direct investments, the items and language regarding such factors leave room for interpretation. As the factors indicated above are not specifically set out in the FEFTA, in theory, the discretion granted to the competent authorities over the review process is relatively broad. However, in practice, such process is exercised within a reasonable scope in most cases, taking into account precedents and balancing the impact on the various authorities.

PROCEDURE

Jurisdictional thresholds

8. What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?

The Foreign Exchange and Trade Act (FEFTA) sets out prior notification thresholds regarding certain investments based on the attributes of the foreign investor, the nature of the business conducted by the target company and number of shares (voting rights) to be acquired (i.e, no less than 1 per cent of shares or voting rights in a listed company and any number of shares in a non-listed company).

As long as the intended investment falls under any of the categories indicated above, the filing of a prior notification is mandatory and there are no exemptions based on turnover, asset size, purchase price or enterprise value.

National interest clearance

9. What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?

When required, the prior notification application must be submitted by the investor via the Bank of Japan to the Minister of Finance and the minister of the competent authority which has jurisdiction over the target company’s businesses. No filing fees apply. The application includes, in addition to basic facts regarding the investor, target company and transaction and information regarding the investor’s beneficial owners.

Once the filing is complete, the notification is forwarded via the Bank of Japan to the relevant competent authorities for deliberation. As long as it is determined that the intended investment does not pose any critical national security issues or concerns, the investor is notified of the clearance, which may sometimes be contingent upon certain conditions (e.g, a pledge not to be involved in the decision-making process in connection with the target business for a certain period of time). During the review process, the investors are frequently interviewed or asked to answer written queries regarding the attributes of the investor and the target company’s businesses.

Even if prior notification is not required and a post-facto report is sufficient under the FEFTA, this report is submitted via the Bank of Japan. The competent authorities do not have the power to intervene in the transaction unless the intended investment falls under one of the categories requiring prior notification.

10. Which party is responsible for securing approval?

The foreign investor is responsible for securing approval. The FEFTA does not specifically provide for communications with the target companies during the examinations.

However, in practice, since a large portion of questionnaires requested by the competent authorities during the review process require confirmation of the target company, it is advisable to enlist its cooperation. In addition, the competent authorities may, at times, pose questions directly to the target company.

Review process

11. How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?

Under the FEFTA, investments may not be executed for the 30 days following the filing of the prior notification (the prohibition period). However, in cases which do not fall under the category of ‘inward direct investment, etc. that would cause damage to national security, etc.’ this period is reduced to two weeks; the foreign investor filing the notification enjoys the  benefit of the reduced period without having to submit a specific request for the reduction of review period. In addition, if the period may be shortened from a national security perspective, it could be reduced even further.

On the other hand, the prohibition period may be legally extended for up to five months if ‘there is a hindrance recognized in terms of safety, etc.’.

In practice, if the review process is not completed within the prohibition period, the foreign investor is required to withdraw the notification and resubmit it once the review is completed (clearance will be issued promptly after resubmission). Such interim review period can extend beyond one or two months.

12. Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?

The foreign investor may not execute the foreign investment until the date specified in the clearance notice received after filing the notification.

If the transaction is executed before the clearance is granted, the investor would be subject to criminal penalties and an order to return the acquired shares or take other necessary action designated by the competent authorities. Furthermore, the foreign investor will not be able to benefit from the exemptions in subsequent transactions.

Involvement of authorities

13. Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?

Before filing the prior notification, the investor may request a brief review by the Bank of Japan regarding the formalities of the notification form.

Separately, foreign investors may (and, in practice, do) engage in consultations with the competent authority having jurisdiction over the designated businesses before the official filing. When conducting prior consultation, the competent authority verifies the attributes of the investor as well as the governance and handling of the target business following the investment through an exchange of questionnaires and interviews. In certain cases (where the investment price is particularly high or the target company operates a business that is considered a core business among the businesses subject to prior notification), it is advisable to allow sufficient time for the prior consultations to secure the grant of the clearance in a timely manner.

14. When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?

Lobbying and any other efforts to obtain informal clearance are not common in Japan. In general, only the information indicated in the notification and answers to the official queries from the competent authorities are subject to review by the competent authorities when contemplating the clearance as well as shortening the prohibition period under the FEFTA and its regulations.

Therefore, when filing applications and negotiating with the authorities, potential foreign investors usually engage lawyers with expertise in the field to act as their representatives in regard to these authorities.

15. What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?

If a prior notification is not filed with respect to a foreign investment that was originally subject thereto, after receiving the opinion of the Council on Customs, Tariff, Foreign Exchange and other Transactions, the competent authority may issue an order to return the acquired shares or take other necessary measures.

If it is determined that a prior notification was originally required but not submitted, a case investigation form should be filed, together with the required notification form and, following the examination by the competent authority, a clearance must be obtained to execute the investment.

SUBSTANTIVE ASSESSMENT

Substantive test

16. What is the substantive test for clearance and on whom is the onus for showing the transaction does or does not satisfy the test?

During the review, the competent authorities assess whether the investment is likely to threaten national security, disrupt public order, compromise safety or have a significant adverse effect on the smooth management of the Japanese economy. They take into account 12 factors, published by the Ministry of Finance and other ministries responsible for relevant business sectors in May of 2020.

Such factors include the following.

• The degree of impact upon preserving the basis of production and technologies relating to the protection of national security, maintenance of public order or safeguard of public safety (collectively known as national securities).
• The likelihood of:
• leakage of technologies or information relating to the national securities; or
• use of these technologies or information in a manner contrary to the protection of national securities.
• The degree of impact of the investment on: (1) terms and conditions of supply; (2) stable supply; or (3) quality of goods or services relating to the protection of the national securities under ordinary and emergency circumstances.
• The degree of impact of the investment on the target company or the borrowing company in view of:
• the number and ratio of shares, equities, voting rights, subscription certificates or corporate bonds that have been acquired or are to be acquired by the foreign investor; or
• the amount and terms and conditions of the outstanding loan by the foreign investor.
• Attributes of the foreign investor, including its capital structure, beneficial ownership and business relationships; the foreign investor’s plans and track record of its conduct as it relates to the investment.
• Track record of the foreign investor’s compliance with the Foreign Exchange and Trade Act (FEFTA) and equivalent or similar legislation of other jurisdictions.
• The likelihood and the degree of impact on the protection of national security and other domains if the foreign investor takes any of the following actions:
• becomes, or has their closely related persons become, auditors or board members of the investee company;
• proposes to the general shareholders’ meeting the transfer or disposition of target company’s business activities in the designated business sectors; and
• obtains, or proposes disclosure of, non-public information regarding the target company’s technology and systems, or proposes changes in the target company’s internal rules, etc. with respect to the management of such information.
• In the case of inward direct investment in core sectors, the likelihood and the degree of impact on the protection of national securities and other domains if the foreign investor takes any of the following actions on its own or through its designated persons:
• attends the target company’s executive board or committees that have the authority to make important decisions when decisions regarding core sector business activities are made; and
• makes proposals, in a written or electronic form, regarding business activities in the core sectors to the target company’s executive board, committees that have the authority to undertake material decisions, or members of the executive board or committees, and requires their responses and action by certain deadlines.

17. To what extent will the authorities consult or cooperate with officials in other countries during the substantive assessment?

While there is no publicly available information regarding the status of international consultation or cooperation among the authorities, in light of the broad discretion granted to the competent authorities, and the fact that the FEFTA is closely related to national policies, the assumption is that, when conducting examinations, the competent authorities cooperate with their foreign counterparts.

The 2019 amendment to the FEFTA allows the Minister of Finance and the minister with jurisdiction over the target businesses to provide information to foreign enforcement authorities (as well as receive such information), confirming the importance of cooperation.

Other relevant parties

18. What other parties may become involved in the review process? What rights and standing do complainants have?

Pursuant to the filing process, the investor is responsible for filing the notification and is the only one legally liable. The target company may be questioned directly by the competent authority during the review process and its de facto involvement may be required in some cases.

In addition, when issuing an order to suspend or change an investment, the minister of the competent authority is required to obtain the opinion of the Minister of Finance’s Council on Customs, Tariff, Foreign Exchange and other Transactions.

Prohibition and objections to transaction

19. What powers do the authorities have to prohibit or otherwise interfere with a transaction?

Under the FEFTA, following the receipt of the opinion of the Council on Customs, Tariff, Foreign Exchange and other Transactions, the Minister of Finance and the minister with jurisdiction over the targeted businesses have the power to order an investor to suspend or change the investment.

The investor must notify whether they accept the recommendation within 10 days from receipt of the order. If the recommendation is accepted, the prohibition period will be shortened and the investment may be executed thereafter. In case the investor does not provide a notification or does not accept the recommendation, the competent authorities may issue an order to suspend or change the investment.

If circumstances leading to the order have subsequently changed, the FEFTA allows for the order to be revoked in whole or in part.

20. Is it possible to remedy or avoid the authorities’ objections to a transaction, for example, by giving undertakings or agreeing to other mitigation arrangements?

If the competent authority orders changes to the investment and the investor accepts them, the FEFTA allows the execution of the investment subject to such amended terms. In addition, the granting of a clearance and the execution of the transaction may be contingent upon the investor accepting certain post-closing undertakings and conditions imposed during the prior consultation process (in such cases, the conditions imposed will be deemed included in the prior notification).

Practically, other than formally challenging their decision, there are no other remedies or ways to avoid the authorities’ objection to an investment.

Challenge and appeal

21. Can a negative decision be challenged or appealed?

As is the case with respect to other decisions made by administrative agencies, the foreign investor may file an appeal with the relevant authority challenging an order to suspend or change the investment. After giving reasonable advance notice, the ministry receiving the appeal is required to hold a public hearing and make a decision on the appeal. A foreign investor dissatisfied with the decision made on appeal may file a lawsuit.

Confidential information

22. What safeguards are in place to protect confidential information from being disseminated and what are the consequences if confidentiality is breached?

Under the FEFTA, there is no specific practice of signing a separate non-disclosure agreement with the competent authorities in connection with the review process.

However, the personnel of the Bank of Japan and each of the competent authorities involved in the review process are public officials and are subject to statutory obligations to keep any information they are privy to during the performance of their duties confidential. Therefore, the risk of information included in the notification being disclosed is low. If a public official violates their duty of confidentiality and leaks confidential information to outside parties, which act results in damage to the foreign investor, such investor may file a claim for compensation against the state.

RECENT CASES

Relevant recent case law

23. Discuss in detail up to three recent cases that reflect how the foregoing laws and policies were applied and the outcome, including, where possible, examples of rejections.

In Japan, there are hardly any cases whereby clearance under the Foreign Exchange and Foreign Trade Act (the FEFTA) is denied. The first and only investment suspension order was issued in 2008. The investment, by the Children’s Investment Master Fund (TCI), a UK-based activist fund, was contemplated in order to provide for the purchase of up to a 20 per cent stake in the Electric Power Development Co, Ltd (J-Power), a Japanese electric utility operating core infrastructures, including nuclear plants and power lines.

In that case, the relevant ministers announced that, upon review, including a series of interviews with the TCI, the investment risked impairing J-Power’s financial condition, reducing future capital expenditure and maintenance spending on fundamental infrastructures and could result in a negative impact on the construction and maintenance of the Ohma nuclear fuel recycling plant. In light of the fact that all other foreign investments since the enactment of the FEFTA back in 1980 were approved, an official of the Ministry of Finance publicly described the Japanese government’s position in that case as ‘exceptional’.

In practice, informal interactions, including conditions for clearance and reconsideration of investment details imposed through consultations, may occur and the small number of refusals does not necessarily constitute a low threshold for obtaining clearance under the FEFTA.

UPDATE AND TRENDS IN FOREIGN INVESTMENT IN JAPAN

Key developments of the past year

24. Are there any developments, emerging trends or hot topics in foreign investment review regulation in your jurisdiction? Are there any current proposed changes in the law or policy that will have an impact on foreign investment and national interest review?

According to a press release by the Ministry of Finance in June 2023, the number of prior notifications under the FEFTA in FY 2022 was 2,426, of which 61 per cent involved ‘cybersecurity-related businesses’ (this category includes information processing services, software, integrated circuit manufacturing, semiconductor memory media manufacturing, et cetera). These statistics reflect (1) the strong interest in cybersecurity businesses in Japan by foreign investors, (2) the strong interest in the protection of cybersecurity businesses by the Japanese government and (3) the recent expansion of the scope of the cybersecurity businesses, which are designated businesses, resulting in a wide range of IT businesses being subject to prior notification.

In addition, the following main changes concerning the regulatory authorities’ review of foreign investments were introduced by the Japanese government in 2023.

Addition of core business sectors

On 24 April 2023, the following business sectors were added to the category of core business sectors in order to help secure stable supply chains and address the risk of technology leakage and diversion of commercial technologies into military use, etc. This addition was made in response to the Economic Security Promotion Act passed in May 2022.

1. Fertilizers (importing business) (limited to imports of potassium chloride and ammonium dihydrogen phosphate.)
2. Permanent magnets (manufacturing and raw material manufacturing businesses).
3. Machine tools and industrial robots (manufacturing business, et cetera).
4. Semiconductors (manufacturing equipment business, et cetera).
5. Storage batteries (manufacturing and raw material manufacturing businesses).
6. Natural gas (wholesale business).
7. Metals and mineral products (refining business).
8. Marine equipment (business of manufacturing engines, et cetera) (limited to diesel engines and navigation tools used to ensure the safety of navigation and propellers.)
9. Metal 3D printers (manufacturing and manufacturing metal powder businesses).

In addition, the amendment clarifies that drones are included in the business of manufacturing aircrafts, which is a core business.

Expansion of designated businesses due to the strengthening of export control regulations

On 23 May 2023, the Ministerial Order Specifying Goods and Technologies Pursuant to the Provisions of the Appended Table 1 of the Export Trade Control Order and the Appended Table of the Foreign Exchange Order (MOSGT) based on the FEFTA was revised, and 23 items were added to the subject of export control regulations.

The 23 new items include manufacturing equipment used in the design, front-end, and back-end processes of semiconductor manufacturing, which is primarily equipment advantageous for the Japanese industry.

Since the FEFTA stipulates that ‘manufacture, etc. of products subject to export control regulations’ are designated businesses, this amendment broadens the scope of designated businesses related to the semiconductor manufacturing business.

These revisions to Japanese regulations implemented in 2023 were aimed at securing stable supply chains, which is a global issue, and protecting businesses targeted by national security strategies around the world, such as the semiconductor business, and this trend is expected to continue.

* The information in this chapter was accurate as at November 2023.

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“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”

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